SELLING THEIR CUSTOMERS OUT

Consumer Problems withDebt Collection Outsourcing

In Australia

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Published by:� Consumer Credit Legal Service Inc (Victoria)

Level 1, 11-19 Bank PlaceMelbourneVictoriaAustralia, 3000Email: cclsvic@vicnet.net.auReg No. A0023361KABN 75 925 182 718

Contributors:

� Consumer Credit Legal Centre (NSW) Inc� Consumer Credit Legal Service (WA) Inc� Care Inc. Financial Counselling Service (ACT)� Legal Aid Queensland; andother financial counselling services, community legal centresand legal aid organisations.

ISBN 1-876306-07-6

Copyright Consumer Credit Legal Service Inc 2002This report is copyright. Non-profit community groups have permissionto reproduce parts of the booklets as long as the original meaning isretained. All other persons and organisations wanting to reproducematerial from the booklet should obtain permission from the publishers.

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Table of Contents

PART ONE - INTRODUCTION 5

PART TWO – SETTING THE SCENE 7

2.1 The Consumer Experience 7

2.2 Debt Collection – The Changing Environment 8

PART THREE – IDENTIFIED PROBLEMS 11

3.1 Non-compliance with Consumer Legislation 11

3.2 Collecting debts that have previously been paid or settled 13

3.3 Collecting Statute Barred Debts 14

3.4 Failure to Respond to Communication 15

3.5 Misleading Conduct 16

3.6 Encouraging Financial Overcommittment 18

3.7 Barriers to Defending Legal Proceedings and Accessing Dispute Resolution 18

3.8 Legal Practice Issues 24

PART FOUR – IMPLICATIONS FOR CREDIT PROVIDERS 25

PART FIVE – CONCLUSION AND RECOMMENDATIONS 27

5.1. Recommendations for Collection House and ALR Lawyers 27

5.2. Recommendations for Financial institutions that outsourcecollection activity or sell or assign allegedly unpaid consumer debts 28

5.3. Recommendations for Industry Dispute Resolution schemes 29

5.4. Recommendation for State and Federal Law Societies 29

5.5. Recommendation for State and Federal Attorneys-General: 29

5.6 Recommendations for Regulators 30

5.7 Recommendations for State and Federal Consumer Affairs Ministers 30

APPENDIX – CASE STUDIES 31

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PART ONE - INTRODUCTION

In the past 12 months or so, clients of legal services and financial counsellors fromaround Australia have been reporting problems with the conduct of Collection House(a debt collection company), their solicitors, ALR Lawyers, and some of thecompanies which use their services.

These businesses and, in some cases the companies that originally owned the debts (egfinance and telephone companies), have been responsible for:

� Consumers being pursued for debts that have already been paid or settled;� Consumers being unable to get details of the alleged debt, or documentation

(despite their legal right to access statements and documentation);� Misleading and deceptive conduct about the status of the debt or the debt

recovery process;� Not responding to telephone calls and correspondence;� Selling or assigning debts while the matter is subject to a current complaint to

an industry dispute resolution scheme; and/or� Issuing proceedings outside the state where the original contract was formed,

causing practical difficulties for defendants.

Furthermore, changes in practices of financial institutions and structural changeswithin the debt collection industry have helped to set the scene for the emergence ofthese problems.

These changes include:

� an increase in outsourcing and selling of debts by financial institutions andother businesses;

� the growing size and “nationalisation” of debt collection firms (also calledmercantile agents);

� the trend towards debt collection on a national, rather than a state basis; and� in 1992, the introduction of federal legislation that does not prevent legal

proceedings being issued in any state regardless of where the matter arose.

This report documents consumer experiences with one of the largest debt collectionagencies, Collection House, and its lawyers, ALR Lawyers. We have focused onCollection House because it is, in terms of its reported size and market share, a marketleader, and because both Collection House and ALR Lawyers have been, in the last 12– 18 months, the subject of significant and recurring complaints to our service and toother casework services.

However, the changes noted above are potentially applicable to many other collectionagencies, and the practices described in this report are not necessarily unique toCollection House and ALR Lawyers.

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The report calls for:

� Collection House and ALR Lawyers to review their methods of operation,implement fairer practices, and ensure that legislative obligations are compliedwith;

� financial institutions to prevent the inappropriate selling or outsourcing ofdebts that have been paid, settled or are subject to alternative disputeresolution; and to take increased responsibility for the actions of their agentswhen debt collection is outsourced, and for the methods used to collect debtsthat are sold or assigned.

The report also highlights the need for legislative reforms to ensure that consumers areable to defend their case in court when a debt collector issues proceedings in anotherstate, and for more effective regulation of legal practitioners.

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PART TWO – SETTING THE SCENE

2.1 The Consumer Experience

Before detailing our concerns about some practices of Collection House and itslawyers, it is worth briefly describing the consumer experience of debt collection.

According to consumer advisers, most consumers being pursued for payment of a debthave little understanding of legal processes, are fearful of court procedures and haven’tobtained legal advice. Often legal advice is unaffordable or inaccessible, or theconsumer does not know where to find appropriate advice.

This leaves them vulnerable to collection agent conduct such as:

� persistent telephone calls,� avoidance of the consumer’s questions or requests for debt details, and� misleading statements about legal processes or the consequences of non-

payment.

The following example, compiled from the experiences of a number of consumers,illustrates the impact of these practices.

Someone calls on the telephone, out of the blue. They say that you owe thousands ofdollars to a finance company – a debt from many years ago. You recall the debt butbelieve it was paid, and say this – but you can’t prove it.

Next you receive a letter from a legal firm, acting for the debt collector anddemanding full payment of the debt or they’ll take you to Court. You explain that youdon’t believe you owe the money and ask for statements or documents. Despitecontinual requests the firm does not provide the information, but tell you that you’llhave to prove you don’t owe the debt. You continue to receive telephone callspressuring you to pay.

You contact the finance company directly and ask for documents or statements. Theytell you that they have no record of the debt, and that it must have been sold to the debtcollector.

You receive Court documents, which give you 21 days to lodge a defence. However,the documents have been issued in Brisbane and you have always lived in Melbourne.

You don’t know where to go to get advice. A friend tells you about community legalcentres, and you ring your local centre for advice. They give you some initialinformation, but tell you they don’t have the resources to give you ongoing assistance.

You go to a private solicitor and find out that just to “stay” the proceedings inBrisbane so that they can be reissued in Melbourne could cost you money that youdon’t have.

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You don’t do anything, and judgment is entered against you in the Brisbane Court.Some weeks later, you receive a call from the legal firm – they tell you that they will besending the Sheriff to take your household goods, or to sell your car, if you don’t pay.

You still believe that you had previously paid the debt in full. However, you feel youdon’t have any options. You are becoming increasingly stressed and upset by thematter, and the frequent calls and demands from the lawyers. You are also scared bythe threats that you will lose your car because you need it for work.

The whole issue is affecting your work and your health. You decide, reluctantly, thatyou will have to pay the debt (again) so that the lawyers will stop calling you. The onlyway you can get the funds is to take out a loan, but you know you’ll have difficultymeeting the repayments.

As this report will show, this type of experience is not uncommon.

2.2 Debt Collection – The Changing Environment

Debt collection, and the environment in which it operates, has undergone some majorchanges in recent years. In the experiences of caseworkers, it seems that these changeshave created an environment that is at least conducive to the practices and problemsidentified in the subsequent sections of this report.

2.2.1 Debt collectors have grown in size and income

The last 18 months has seen substantial growth in the size of debt collectioncompanies, and the debt collection industry is now booming. Current annual income isapproximately $220 million, and a number of estimates predict an increase to $500million within the next five years.1

In 2000, debt collection firms were listed on the Australian stock exchange for the firsttime, and there are now three publicly listed companies.2

However, the growth in the debt collection industry has not necessarily been evenlyspread. A significant amount of business is concentrated in a small number of largerfirms. For example, according to an April 2001 report in Shares Magazine, the top 5or 6 players have ‘between 50 or 60% of revenues’. That same report also noted thatone agency (Collection House) is ‘…the dominant collector of consumer debts inAustralia…’, and that it ‘…counts three of the four big banks, all four big phonecompanies [and] the top three car financiers as clients.’ (emphasis added)

Outside the top 5 or 6 players, the remaining revenue and work is taken up byhundreds of smaller operations.

1 Sydney Morning Herald 9/10/2000.2 Shares Magazine April 2001.

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2.2.2 Debt collection has become a national business

Until a few years ago, debt collectors tended to operate wholly within one State orTerritory. If a debt was incurred in a particular jurisdiction, it was usual for collectionto be undertaken by a collection agent in that jurisdiction. If legal proceedings wereissued, they would also be issued in the same jurisdiction. Debt collection firms didlittle, if any, work outside their own State or Territory. This is still the case for thesmaller debt collection businesses.

In recent years, however, national debt collection firms have been established, withoffices in a number of states and territories.

The feasibility of a national debt collection firm has been increased with theintroduction of the Service and Execution of Process Act 1992 (Cth). This legislationdoes not prevent proceedings being issued in any state, regardless of where therelevant contract was formed. The legislation places the onus on the consumer toprove that the jurisdiction is inappropriate – rather than requiring the debt collector toshow it has issued in the appropriate jurisdiction. As noted in section 3.7.2 this canprevent consumers from lodging a defence.

In our experience, debt collection on this large scale can lead to a “sausage machine”approach, where standard and inflexible procedures are followed by a collectionagency, regardless of the consumer’s circumstances or particular legal situation.

For example, Collection House appears to use standard forms and computer generatedletters. Similarly, Collection House appears to use, for consumer contact, a largenumber of staff with inadequate legal training, who use scripted telephone responsesthat often do not adequately respond to the particular enquiry or circumstance. Asdiscussed below, requests for proof of the debt or other documentation are regularlyavoided or ignored, and telephone calls from consumers and their advisors aresometimes not returned.

Despite this trend to nationalisation in at least some parts of the market, regulation ofdebt collectors is still state based. National firms must therefore be licensed orregistered in each of the jurisdictions (with the exception of the ACT) in which theyoperate. (Licensing or registration is not required in the ACT).

2.2.3 The scope of debt collection work has increased

Debt collection firms have tended to act primarily for non-finance sector creditors,such as councils, hospitals and funeral companies. Until recently, banks, financecompanies and insurance companies did much of their debt recovery work “in-house”.

Now, however, there is an increasing trend for financial institutions to outsource theircollection work to debt collection firms. The firm acts as an agent of the financialinstitution, and the financial institution can therefore potentially be liable for the firm’sconduct.

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In addition, more financial institutions are choosing to assign or sell outstanding debts,or books of outstanding debts, outright. This seems to primarily occur when the debt isquite old, and no payments have been made for a number of years. However,caseworkers have also seen examples of relatively young debts being sold.

If a debt is sold, the purchasing collection firm takes on all rights (for example, tocollect the debt) and responsibilities (for example, to meet obligations under theUniform Consumer Credit Code (UCCC)), in relation to the debt. The originalfinancial institution is no longer involved.

As explained below, the sale of debts by financial institutions often severely limits thedebtors’ access to effective dispute resolution.

Collection House and its related company, Lion Finance Pty Ltd, are amongst the mainagencies that appear to be regularly purchasing debts from financial institutions.

2.2.4 Debt collectors have developed close relationships with law firms

Some debt collection firms have developed close relationships with law firms. In ourexperience, it is not unusual for a law firm to share an address with a debt collector, toapparently act solely for that debt collector, and in cases, to share staff and otherresources. This appears to be the case with Collection House and ALR Lawyers.

Legal practice rules in a number of states prohibit the use of a legal practitioner’sbusiness name or stationary by a debt collector in a manner that is likely to mislead thepublic. According to the NSW Solicitors Manual, this is to ensure that a solicitor’spractice, which takes instructions from a debt collector, is “not used merely as aconvenient mechanism or ‘front’, for the operation of the collection agency”.3

These close relationships between debt collection businesses and their lawyers havethe potential of blurring the boundaries between the solicitor and debt collectionagency, and of therefore causing some of the problems that legal practice rules wereintended to prevent.

3 For example, see Riley, NSW Solicitors Manual, para 40,475. See also rule 35, Revised ProfessionalConduct and Practice Rules 1995 (NSW).

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PART THREE – IDENTIFIED PROBLEMS

This part of the report outlines some specific problems and difficulties that consumersand their advisers have faced when dealing with Collection House and ALR Lawyers.

3.1 Non-compliance with Consumer Legislation

A major concern of consumer advisors is the failure of Lion Finance and CollectionHouse to comply with their obligations under the Uniform Consumer Credit Code(UCCC).

It is worth noting that these obligations apply both where the debt collector is acting asagent for a financial institution, and where the debt collector has purchased the debt.

When a debt is sold, and the debt relates to a credit contract regulated by the UCCC,the consumer retains their rights under the UCCC and the new ‘owner’ of the debtmust fulfil any obligations under that legislation.

When a debt collector is acting as an agent for a credit provider, the debt collector isalso obliged to comply with the UCCC on behalf of that credit provider. In this case,however, the credit provider bears legal responsibility for ensuring that the obligationsare complied with.

Despite this, it is our experience that many of the staff of Collection House and ALRLawyers appear to have inadequate knowledge of obligations under the UCCC.

3.1.1 Problems Obtaining Documents and Other Information

A major problem experienced by consumers - and also by their advisors - is the failureof the Collection House or ALR Lawyers to provide documents or information aboutthe debt, despite their legal obligations to do so.

From case study 8: A legal centre wrote a letter to ALR Lawyers requestingdocuments and information about an alleged debt. No reply was received. Eachmonth for 3 months another follow up letter was sent requesting documents.Eventually, ALR Lawyers wrote a letter confirming they were no longer pursuingthe debt – the documents were never provided.

Two major problems that face consumers when they are contacted by a collectionagency are establishing or confirming:

� whether they actually owe the debt being claimed by the agency; and� if the debt is owed, whether the amount being claimed is correct.

Particularly in cases where the alleged debt being pursued is a number of years old, itis not surprising that many consumers cannot remember the exact details of how, orwhen, the debt was incurred (if at all). This is why it is critical that a consumer canreceive copies of documents relating to the alleged debt.

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Indeed, sections 34, 76 and 163 of the UCCC specifically give a debtor the right tocopies of certain documents and information relating to a consumer credit contract.This information must be supplied within a certain time period (in most cases, for aloan over one year old, the required period is 30 days).

If the request is made to an agent of a credit provider – i.e. a debt collection firm - thatagent must provide those documents on request.

Where a debt regulated by the UCCC has been sold, the purchaser of the debt also hasa legal obligation to comply with the UCCC, and must provide relevant documents andinformation on request.

Despite this legal framework, consumers asking Collection House and/or ALRLawyers for information and documents about an alleged debt have been advised that:

� the debt collector or legal representative is not obliged to provide the information;� the consumer has to pay for the information, as it is stored in archives and it would

cost money to retrieve it;� the debt collector, and/or their legal representative, does not have details of the

original loan, or details of when the loan was entered into, or the outstandingamount at the time of breach; and/or

� all original documents have been destroyed, but the debt collector is entitled to relyon scant details held on its computer system to prove the debt was owed.

Many consumers are not aware that they may be legally entitled to the relevantdocuments. In the face of persistent refusals to provide proof of the debt, theseconsumers may well pay the debt requested, even if it is not owed, or the figurerequested is inaccurate, simply due to the pressure applied by the collector and/or thefear of legal action.

See Case Studies 2, 3, 4, 8, 12, 18, 21, 23

3.1.2 Lack of knowledge of the legal framework

Although the failure to provide documents and information on request is a majorproblem for consumers and advisors dealing with Collection House and ALR Lawyers,there have also been other instances where it appears that their staff have limitedunderstanding of the legal framework governing consumer credit.

For example, ALR Lawyers and Collection House often seem unaware of the right ofconsumers to seek a variation of a credit contract on the grounds of hardship.

Case study 17: A financial counsellor was speaking to ALR Lawyers on thetelephone and asked to speak to someone more senior. The person she was handedto confirmed he was ‘in charge’. She asked if he was a solicitor, and he said ‘no’.

She mentioned that her client wished to apply for a hardship variation under theConsumer Credit Code, and he said that he was not aware of these provisions in theCredit Code.

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This type of response is a concern, given that a large amount of this firm’s workinvolves contracts regulated by the Credit Code.

3.2 Collecting debts that have previously been paid or settled

ALR Lawyers have, on a number of occasions, pursued for payment some consumerswho have already paid or otherwise settled a debt. Their actions in this regard arecompounded by a failure to provide any information or documents that would provethat the alleged debt continues to exist. Consumers faced with this refusal to provideinformation may be sufficiently intimidated or pressured to pay a debt a second time,as the case study below demonstrates.

From case study 3: Ms Q’s car was repossessed 8 years ago. She recalls at the timebeing told that no money was owing, and could not recall hearing from Finance CoA in 8 years. ALR Lawyers contacted her claiming $10,000, but failed to give herany details about the debt when requested.

ALR continued to question her about her ability to pay, and about what possessionsshe and her family owned. Intimidated, she paid $5,000 before seeking help from afinancial counselling service.

In at least some cases, this problem has arisen because one major financial institutionappears to have passed on some accounts to Collection House on which the institutionsuffered a loss – not from the result of failure to pay, but as a result of the consumerlegally cancelling the contract or settling a dispute for an amount less than claimed bythe institution.

Case study 25: A number of consumers contacted caseworkers in relation to debtsallegedly owing to Finance Co A that were being collected by Collections House orALR Lawyers.

Many of these debts, which we believe were purchased from Finance Co A, werestatute barred (see section 3.3) – and a significant number had actually been paid orsettled.

Following advocacy by the consumers’ representatives, the individual matters wereeventually dropped. However, concerns about the handling of these debts wereraised at the time with Finance Co A and ALR Lawyers.

Finance Co A responded that it ‘…did not assign any debt which had been finalised,was statute barred or was the subject of an undertaking … that the debt would notbe pursued’, and that ‘…any correspondence sent by Collections House or ALRLawyers to debtors with accounts in this category was done by them in error’.

ALR Lawyers advised that, since the issue had been drawn to their attention, theyhad undertaken an audit of their files, and removed names where debts had beenpaid or settled. However, it is unclear how the personal details of consumers whodid not owe a debt, came to be in the possession of a debt collector.

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The audit by ALR Lawyers will only go some way to resolving the problem, because,as ALR Lawyers itself noted and subsequent cases revealed, the audit did not identifyall consumers in this situation. We expect that judgment will be entered against asignificant number of consumers who have already paid or settled a debt, and some ofthose people may pay the debt twice.

It is, of course, also most unfortunate that the audit by ALR Lawyers did not take placeearlier and that Finance Co A did not itself undertake such an audit before assigningthe debts. Given the acknowledgement by ALR Lawyers that some errors are to beexpected, it is grossly unfair that the procedures often adopted by ALR, including therefusal to provide information about the debt, put barriers in the way of consumerswho wish to query or dispute the claim.

We would also have serious concerns if financial institutions did not have appropriateprocedures in place to ensure that information about consumers who have paid orsettled debts is not disclosed to debt collectors or third parties.

See case studies 1, 2, 3, 4, 5, 8, 9, 12, 14, 21

3.3 Collecting Statute Barred Debts

Under legislation in each State and Territory, consumers gain an unassailable defenceto debt recovery proceedings where more than 6 years have passed since the contractwas breached or since the consumer last made a payment or acknowledged the debt.This limitations defence applies to all contracts, not just consumer debts. The aim ofthis type of legislation is to discourage parties from letting a matter lie. It is alsorecognition of the practical difficulties of litigation where the events in question tookplace many years earlier. For example, documents may be lost or destroyed, andmemories are likely to be less reliable.

This limitations defence is therefore a legitimate defence for consumers if a creditprovider has not taken any action to enforce the alleged debt for many years. However,consumers are generally unaware of the existence of this defence.

From case study 20: Mrs. Y’s lawyer wrote to a finance company advising them thatthey were barred from issuing debt recovery proceedings by the relevant Statute ofLimitations. But two years later, Collection House asked Mrs. Y. to makearrangements to pay the debt, and threatened legal proceedings if she did not do so.

Although such collection is not by itself illegal, it is, in our view, an unfair practice,particularly if combined with failure to provide information and documents in relationto the debt (see section 3.1.1), misrepresentations about the status of the debt (seesection 3.5) and the institution of proceedings in another jurisdiction (see section3.7.2).

In addition, solicitors are legally entitled to destroy files after seven years, and otheradvisors may also destroy files after a similar period of time. It would also beunreasonable to expect consumers to maintain records for longer than this.

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Where proceedings are instituted in relation to old debts, there is also a risk that thefinancial institution has not kept the relevant records. This has been the experience ofsome consumers being pursued for old debts.

We fear that many consumers who cannot prove that an old debt has been paid do notrealise they can successfully defend proceedings instituted by credit providers or debtcollectors. We are also concerned that the credit providers or debt collectors whoinstitute proceedings in these circumstances are consciously relying on the fact thatmost consumers will not know of the availability of the defence.

If proceedings are instituted by a debt collector or credit provider, and the consumerdoes not defend those proceedings – whether because of lack of knowledge or accessto legal advice, or other reasons – default judgment can be entered against theconsumer. This is the case even if a valid limitations defence would have beenavailable (see section 3.7.1).

See Case Studies 2, 3, 9, 20

3.4 Failure to Respond to Communication

In our experience, Collection House and ALR Lawyers regularly fail to respond tocommunications from a consumer or the consumer’s representative. For example, theyoften fail to:

� return telephone calls from a consumer’s representative;� reply to correspondence from a consumer’s representative;� respond to requests from consumers and their representatives for information

about the debt or relevant documentation (see also section 3.1.1).

This can contribute to the consumer’s anxiety, as the wait for a response lengthens, butthe threat of legal action remains.

From case study 23: A friend of Ms L stole her driver’s license and used it to sign upa mobile phone account. Through a Legal Aid lawyer, Ms L tried to show that shehad not started the account, and that she was not responsible for the bills. It tookalmost twelve months to achieve a result.

Messages left with ALR Lawyers were not returned. Faxes and letters were notreplied to. Delays were explained by staff changes, computer malfunctions, and thatALR itself had changed ownership.

Seven months after the first contact with ALR, Ms L’s lawyer learned that Telco Ahad withdrawn the matter from ALR, and would not be pursuing the debt. However,Telco A advised that it was waiting to receive the Notice of Discontinuance fromALR Lawyers in order to finally settle the matter. Ms. L’s lawyer did not receive thisfor another five months.

As many of the case studies show, consumers’ legal representatives are required toundertake an enormous amount of follow-up work because of this failure to respond tocommunication.

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As well as failing to respond, staff at Collection House or ALR Lawyers sometimesfail to reply to specific questions from consumers. For example:

� a question about whether part payment will be accepted is met with a demandfor the consumer to obtain a loan to pay the debt; and

� a question about details of the debt claimed may be met with a question aboutwhat property the consumer owns.

This manner of communicating is discourteous and denies consumers access toimportant information.

A practice of ignoring telephone calls and correspondence also significantly increasesthe communication costs for consumers and their advisers. Where the collectionagency is operating from a different state to that in which the consumer lives, theconsumer or their adviser must incur high call charges in order to chase up a response.This is particularly of concern for consumers based in Western Australia and/or inrural and remote areas.

As discussed later in this report, some debt collectors and their lawyers do collectdebts across state borders. For example, Collection House and ALR Lawyers haveoffices in most states, but appear to conduct a large amount of their collection workfrom Queensland.

Some financial institutions take steps to ensure that consumers and their advisors cancontact them without additional STD costs. However, when debts are sold orcontracted out or sold to a debt collector, our experience is that it is rare for similarassistance to be provided. We believe that businesses collecting interstate debts shouldintroduce free or low cost telephone numbers for regional and interstate callers.

See Case Studies 2, 3, 4, 8, 12, 13, 18, 21, 23

3.5 Misleading Conduct

Consumers and their advisors claim that Collection House or ALR Lawyers have mademisleading statements about matters such as:

� The legal status of the debt (often whether or not judgment has been entered)� The consumer’s legal right to documents; and� The consequences of non-payment.

In a number of instances, consumers and their advisors have been wrongly advised thatjudgment has been entered. Such misinformation can have serious implications. Inrelation to a debt where action is statute barred, judgment changes the status of thedebt – from being one the consumer can defend because its time limit has expired, to adebt that remains valid for 15 years. Such a ‘mistake’ can therefore seriously misleada consumer or consumer representative about the enforceability of the debt or the legalrequirement to make a payment.

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Case study 24: Mr J’s solicitor asked someone at ALR Lawyers whether judgmenthad been entered against his client.

The person’s reply was that ‘... there’s something here that looks like judgment.’ Infact, judgment had not been entered.

Some consumers have been told that certain assets (such as a car or household goods)could be seized, in situations where this is not the case – for example where anothercreditor has security over the asset or where state laws protect certain property.

From case study 26: Mrs X claimed that a Collection House employee said that theSheriff could take her fridge, microwave, TV, video, washing machine and car.

In Victoria, where Mrs X lives, the Sheriff is prohibited from seizing householdassets which are protected in Bankruptcy, and the Sheriff would be unlikely to seizeany of Mrs X’s whitegoods.

Staff of Collection House and ALR Lawyers often do not appear to understand thelegal process. This is reflected in their representations to consumers. In addition, it isnot clear to us how many of the staff of Collection House or ALR Lawyers are legallytrained. This apparent lack of knowledge and training, together with the fact thatCollection House and ALR Lawyers often appear to have minimal details, and nodocumentation about the alleged debt, increases the risk that consumers could bemisled.

Misleading representations in relation to the consequences of non-payment orremedies available to the debt collector are likely to breach the Trade Practices Act1974 (Cth).

Section 52 of the Trade Practices Act prohibits “conduct that is misleading ordeceptive or is likely to mislead or deceive”. Section 60 of the Trade Practices Actprohibits “undue harassment and coercion” in relation to supply or payment of goodsor services by a consumer.

In recent years, debtor harassment (including misleading statements) by debt collectorshas been the subject of work undertaken by the Australian Competition and ConsumerCommission (ACCC). Following from that work, the ACCC released a guideline to s.60 of the Trade Practices Act in 1999. This included principles that:

� “A collector must not engage in any other conduct that is misleading ordeceptive or is likely to mislead or deceive.”

� “A collector must not make a false or misleading representation about theconsequences of non-payment.”

� “A collector must not give information about the consequences of legal actionthat is misleading or deceptive or likely to mislead or deceive”.

In our experience, Collection House and ALR Lawyers are often not following theseguidelines.

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The courts have also confirmed that misleading statements can amount to undueharassment. In ACCC v McCaskey,4 Justice French found that a representation to aconsumer about legal remedies which could be taken against her house, and to anotherconsumer about potential criminal liability arising from stopping a cheque weremisleading and deceptive conduct.

Justice French also found that such representations could also be “undue harassmentand coercion”. He said:

“….where the demand includes content which does not serve legitimate purposes ofreminding the debtor of the obligation and threatening legal proceedings for recoverybut is calculated otherwise to intimidate or threaten the debtor, then the coercion maybe undue. So if a threat is made of criminal proceedings, or of the immediate seizureand sale of house and property, a remedy not available in the absence of retention oftitle or some form of security, the coercion is likely to be seen as undue.”

See case studies 3, 7, 10, 11, 16, 19, 20, 26

3.6 Encouraging Financial Overcommittment

Many consumers report that Collection House pressured them to borrow money torepay the debt, and referred them to specific lenders. A number have claimed thatCollection House have demanded to see a number of letters of credit refusal so as toconfirm that the consumer has applied for credit. Consumers also report thatCollection House encourage consumers to pay the debt by credit card and/or referconsumers to a finance broker who can facilitate a personal loan to pay the debt.

Going into further debt in this way may be a temporary solution for some consumers,particularly for those that are being unfairly harassed by collectors or their lawyers.However, it may increase the consumer’s financial worries when the repayments forthe additional credit need to be found.

In some circumstances, it is irresponsible to encourage financial overcommitment inthis way. In addition, allowing consumers to repay a credit card debt with anothercredit card is clearly contrary to the principles and practices exercised by credit cardproviders.

See Case Study 19, 26

3.7 Barriers to Defending Legal Proceedings and Accessing DisputeResolution

As discussed above, consumers often face significant hurdles in obtaining thenecessary information to determine their legal position when contacted by a debtcollection agency such as Collection House or ALR Lawyers. However, even if aconsumer is able to determine their legal position, they often face additional hurdlesbefore they can access justice.

4 (2000) 104 FCR 8

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3.7.1 Default proceedings

Most debt recovery action in the Courts is based on a default procedure; the creditprovider or debt collector issues the matter in Court, and the documents are served onthe debtor. If the debtor wants to dispute the debt, he or she must lodge a writtendefence within a specified time. This is the case even if the claim is statute-barred.Once a defence is lodged, the matter can be heard in the relevant court.

If no defence is lodged, judgment will be entered at the request of the creditor (defaultjudgment), and Court sanctioned enforcement proceedings (eg garnishee orders,seizure and sale of goods) become available.

In practice, only a small percentage of people lodge a defence in response to debtrecovery proceedings.

Consumer advocates say that, in addition to proceedings being issued outside theconsumer’s state, there are a number of reasons why consumers (even those with astrong defence) rarely lodge a defence. These include:

� lack of access to legal advice and assistance;� fear of additional costs if they lose;� possibility of an appeal by the other party if they win (not uncommon in

consumer debt matters);� general fear of the legal process and courts; and� personal impact on them and their families due to stress of legal proceedings.

Despite moves in recent years to improve access to justice for low-income anddisadvantaged consumers in some matters, there has been little or no improvement inrelation to civil default procedures. Further work is needed to ensure that barriers suchas those described above can be overcome, particularly for those consumers who dohave a strong defence. In addition, any laws or procedures that further restrict theability for these consumers to defend their cases must be urgently reviewed.

3.7.2 Issuing proceedings in other jurisdictions

ALR Lawyers routinely issue legal proceedings in a state other than that where therelevant contract was entered into. The Service and Execution of Process Act 1992described earlier facilitates this practice. This usually means that proceedings areissued in a court in a state where the consumer does not live.

It is clear that consumers wanting to defend proceedings issued in another jurisdictionwill often face significant practical difficulties and costs. The defendant will incurcosts in transport and accommodation to attend the proceedings. In addition, thedefendant will have to either find a solicitor in that jurisdiction, or instruct his or herown solicitor to instruct an agent in the jurisdiction.

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However, even if the consumer wants to argue that the proceedings should have beenissued in his or her local jurisdiction, he or she will normally have to apply for a stayof proceedings in the original (interstate) jurisdiction. Many of the same practicaldifficulties will arise.

The Service and Execution of Process Act 1992 allows defendants to apply to the courtwhere proceedings were issued for an order staying the proceedings. The Court candetermine such an application without a hearing. However, in these cases the debtcollector or solicitor could object to this course of action,5 requiring the consumer toappear in the interstate Court. The consumer would have to either find a solicitorwhere the proceedings were issued or instruct his or her own solicitor to instruct anagent in the jurisdiction.

A court can make an order to stay the proceedings if it is satisfied that another court isthe appropriate court to determine the matter(s). The onus is on the defendant todemonstrate the appropriateness of the other jurisdiction.

In deciding whether another court is more appropriate, the original Court mustconsider factors such as the place where the subject matter of the proceeding islocated, the place of residence of the parties and of the witnesses likely to be called inthe proceedings, and the financial circumstances of the parties.6

The outcome of such proceedings is not always easy to predict. Where the contractwas made in the consumer’s jurisdiction, the credit provider is in that jurisdiction, andall of the relevant conduct took place in that jurisdiction, then an application to stayproceedings in the issuing (interstate) jurisdiction is more likely to be successful.

However, if there are some links to the jurisdiction in which the proceedings wereissued, the outcome will be less certain. Ultimately, the decision rests with thediscretion of the Magistrate or Judge hearing the matter.

Of course, if the application is unsuccessful, the consumer then faces the difficultdecision of whether or not to defend the proceedings in the foreign jurisdiction, andthus expend further costs.

While the Service and Application of Process Act 1992 applies in all jurisdictions,there are also rules of procedure that may vary between the different States andTerritories. For example, in NSW, a debtor objecting to the jurisdiction of the NSWCourt must file a conditional defence, in addition to an application for an order to staythe proceedings. If a normal defence is filed in NSW, the debtor will be seen to beconsenting to the jurisdiction of the NSW Court, and will not be able to make anapplication to stay proceedings on the grounds that another jurisdiction is moreappropriate.

5 s. 20(6).6 s. 20(4).

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While community legal centres and Legal Aid Organisations may be able to provideassistance or representation in matters of this type, their capacity to do so is verylimited, particularly in light of the fact that it requires the solicitor concerned tobecome cognisant of the procedural rules in another jurisdiction or to instruct anothersolicitor in that jurisdiction to appear in the matter.

Private solicitors may also be able to provide assistance. However, they will generallycharge a fee, and for consumers who are already in financial difficulties, this isunlikely to be a realistic option. Also, in some circumstances in some jurisdictions, asuccessful application for a stay of the proceedings would not entitle the applicant torecover their legal costs from the other party.

For consumers with limited understanding of the legal system, and/or limited access tolegal advice or assistance, the mere fact that proceedings have been issued againstthem in another jurisdiction may be enough to dissuade them from taking any action todefend the debt.

Instituting proceedings in another jurisdiction therefore creates significant barriers fordebtors. In circumstances where the consumer and contract are clearly based in onejurisdiction, and the relevant conduct occurred in that jurisdiction, we can see nological reason why proceedings should be instituted in a different jurisdiction.

In circumstances where the debt is statute-barred, or has been paid or otherwise settled,this practice is grossly unfair.

From case study 5: Mr G lived in Victoria, where he was contacted by CollectionsHouse over a loan contract that had been legally cancelled six years beforehand.

ALR Lawyers commenced legal proceedings against Mr G in the BrisbaneMagistrate’s Court. Mr G wanted to defend the action, but wanted to do so in theVictorian Courts.

The Legal Service acting on his behalf had to research the Queensland procedures,and eventually lodged a conditional defence in Brisbane, disputing the jurisdictionof the Queensland Court to hear the matter.

See case studies 5, 7

3.7.3 Limited Assistance for Consumers

Debt collection matters usually take a disproportionately large amount of time andresources of legal assistance services, due to constant delays in responses from debtcollectors and their solicitors, and to proceedings often being issued in other states.

Community Legal Centres, Legal Aid organisations and financial counsellors havelimited resources that need to be allocated to a large range of problems. The majorityof these free legal services do few, if any, civil matters.

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In addition, those that do provide assistance for civil matters do not normally have theresources to assist every consumer who has a valid defence to a debt and/or who needsto stay legal proceedings issued in another state. Instead, they can usually only assist asmall number of consumers each year.

However, for many of these consumers, private legal assistance is not an affordableoption, particularly in cases where the alleged debts are relatively small and/or there isno provision for awarding costs even if the consumer is successful.

3.7.3 Sale or Collection Activity While Matter Subject to Alternative DisputeResolution

Most financial institutions and telecommunications companies are, or will soonbecome, members of an industry alternative dispute resolution (ADR) scheme thatprovides free, and often effective, resolution of consumer complaints. For example,most retail banks are members of the Australian Banking Industry Ombudsman(ABIO) scheme, which has the power to make a final determination that legally bindsa member bank. The ABIO will also soon have jurisdiction over bank-owned financecompanies.

Likewise, most telecommunications companies are members of theTelecommunications Industry Ombudsman (TIO) Scheme.

Members of these schemes cannot take legal action against a consumer while acomplaint is being dealt with by the scheme. In a similar spirit, caseworkers and otherswould also regard it as exceptionally bad practice for a member to continue pursuing adebt whilst the matter is under investigation by the ADR scheme.

On the other hand, a consumer cannot make a complaint to the ABIO or TIO if thescheme member has already started legal proceedings against him or her.

However, consumers are finding that some collectors will often continue to pursue adebt after the matter has been placed in the hands of an external ADR scheme.Collectors have made contact with consumers during this period, and in some cases theconsumer has been advised that the debt has been sold, all while the ABIO’sinvestigation is still underway.

From case study 6: Mrs. Y has an intellectual disability. She referred a dispute withBank B to the Australian Banking Industry Ombudsman, with the assistance of alegal aid lawyer.

While the matter was being investigated, she received a letter demanding paymentfrom ALR Lawyers. The letter also advised that Bank B had sold the debt toCollections House.

Continuing collection activity while the matter is with the ABIO may not affect theconsumer’s ultimate legal rights. However, it is likely to confuse the consumer andcause further distress. In our view, it is inconsistent with good practice for banks toallow collection activity to continue in these circumstances.

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Of greater concern is the fact that a debt can be sold while the matter is being dealtwith by the ABIO. While the member banks have committed themselves to abiding bythe ABIO’s decisions, the purchaser of the debt has no obligation to do so and cancontinue to pursue the debt against the debtor. In some cases this may lead tojudgment being obtained, enforcement action (including bankruptcy) being taken, andthe listing of a default or judgment on a credit report – all while the matter is supposedto be in the hands of the ABIO.

This practice therefore threatens to limit the jurisdiction of industry dispute resolutionschemes and to considerably reduce access to justice for consumers. It also appears tobe inconsistent with the spirit of current benchmarks for industry dispute resolutionschemes. For example, the Australian Securities and Investments Commission’s PolicyStatement on dispute resolution schemes includes the following:

A scheme’s coverage should be sufficient to deal with:(a) the majority of consumer complaints in the relevant industry (or industries) and

the whole of each complaint; and(b) consumer complaints involving monetary amounts up to a specified maximum

that is consistent with the nature, extent and value of consumer transactions inthe relevant industry or industries. (emphasis added)7

The sale of accounts by institutions which belong to an industry ADR schemeexcludes those accounts from, and therefore reduces the coverage of, that scheme.Any practice that limits the jurisdiction of a dispute resolution scheme reducesconsumer access to affordable dispute resolution, and is of great concern.

As well as schemes such as the ABIO, some industries are now required, eitherthrough enforceable Codes of Practice or licensing requirements to implement internalprocedures for handling disputes. When a debt is sold, the debtor loses access to thefinancial institution’s internal procedures.

Collection House has recently introduced a complaints desk and complaints handlingprocedures. It is yet to be seen whether these procedures will be effective forconsumers, but there are some concerns. A substantial amount of the work ofCollection House and ALR Lawyers is done by telephone, and most complaints arelikely to involve a consumer’s word against that of an employee.

From case study 10: The response to a complaint to ALR Lawyers referred to thefirm’s policy on recovery of outstanding funds, referred to the employee’s notes, andstated that the employee “denies the allegations made with respect to therepossession and sale of the car”.

Many of the issues raised appear to affect a number of consumers, and a systemdesigned to handle individual complaints is unlikely to be effective unless broadersystemic problems are also addressed.

See case studies 6, 10, 22, 26

7 ASIC Policy Statement PS139.34

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3.8 Legal Practice Issues

Legal professional practice rules and laws have been established for the protection ofthe clients of legal practitioners, protection of the general public, and to maintain thereputation and integrity of the legal profession; which in turn is important to theadministration of justice. The legal practice rules vary between different jurisdictions,however there are many similarities.

Consumers being pursued for debts by ALR Lawyers report a number of practices thatcontravene the spirit and/or the letter of these legal practice rules. These include:

� Contacting the consumer directly, even though the firm has been advised thatthe consumer is legally represented;

� Making incorrect statements about the status of the debt and consequences ofnon-payment;

� Failing to have adequate legal supervision of staff;� Lack of knowledge of the relevant laws (such as the UCCC or state debt

recovery laws) applying to the matter in question;� Long delays in communication with the public or other legal practitioners;� Failing to provide documents (or allowing their client to fail to provide them)

that the client is legally obliged to provide;� Failing to act promptly and with courtesy;� Failing to state unambiguously whether the staff member is a solicitor; and/or� Failing to correct a misconception that a staff member is a solicitor when they

are not.

From case study No 8: A solicitor wrote a letter each month for 4 months to ALRLawyers requesting documents which ALR’s client was obliged to provide within 30days under consumer credit legislation. No response was received to the first 3letters, however after the fourth letter ALR agreed not to pursue the consumer forpayment.

From case study No 7: Despite a request by the consumer’s solicitor, no one at thelaw firm would provide the name of the solicitor responsible for the case or transferthe call to a solicitor,

From case study No 5: Despite the consumer’s solicitor providing detailed reasonswhy the claimed debt (relating to a contract signed in Victoria) was not owed, thelaw firm did not withdraw legal proceedings for some months, requiring theconsumer’s solicitor to undertake significant work to stay the proceedings that hadbeen issued in Brisbane.

See case studies 3, 11, 18, 21, 23

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PART FOUR – IMPLICATIONS FOR CREDIT PROVIDERS

While this report describes the conduct of Collection House and ALR Lawyers, it isalso relevant to credit providers who outsource debt collection activities and/or selldebts to these businesses and other third parties.

Where a credit provider refers debts to a debt collector for recovery, the debt collectorand its solicitor are acting as the credit provider’s agent. The credit provider istherefore legally responsible for the conduct of its agent and could be expected to takesteps to ensure that the practices described in this report do not take place.

However, our concern is that many credit providers fail to make enquiries about theprocedures used by their agents, and do little or nothing to monitor their agents’conduct.

In addition, we are concerned that some credit providers may not implementprocedures and practices to ensure that debts that have been paid, cancelled, orotherwise settled, or which are clearly statute-barred, are not sent to agents forcollection.

This apparent lack of care seems to exist despite the fact that many credit providershave developed sophisticated systems to monitor compliance with their ownobligations. Many have also gone further than ensuring compliance with the law, andhave developed considerable energy to improving customer service throughdeveloping and promoting industry codes, charters and ADR schemes. It is thereforedisappointing that that they have failed to expend similar efforts in monitoring orcontrolling the conduct of their debt collectors.

While the legal responsibility of the credit provider is reduced when debts are sold,credit providers should ensure that their decisions to sell or assign allegedlyoutstanding debts do not disadvantage consumers or create unnecessary barriers toconsumers who wish to clarify their obligations and/or dispute the debt.

For example, credit providers should ensure that debts that have been paid, cancelledor otherwise settled, or which are clearly statute-barred, should not be forwarded to acollection agent or sold to a third party. Unfortunately, it appears that this is not alwayshappening.

A number of credit providers appear to have breached legislation by selling debts tocompanies that are not appropriately registered. For example, consumer debts havebeen sold to Lion Finance and Collection House. Neither appears on the list ofregistered credit providers issued by Consumer and Business Affairs Victoria. Thisconduct appears to be in breach the Consumer Credit (Victoria) Act 1995by theoriginal credit providers.

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We do not believe that credit providers are entitled to “wash their hands” of debts oncethey are sold or collection of the debts is outsourced. Legal obligations andexpectations that credit providers will act fairly, suggests that credit providers should:

� Establish appropriate audit systems before debts are sold or collection isoutsourced;

� make enquiries about, and monitor collection procedures of their agents andpurchasers; and

� ensure that the purchaser of the debts and/or collection agent is able to complywith credit legislation by providing documentation and statements within thetime periods allowed by the Consumer Credit Code.

Financial institutions should not wait for complaints to be made about their debtcollectors. As part of a compliance program, institutions should clearly ask financialcounsellors and community lawyers to provide them with information about thebehaviour of their debt collectors and lawyers. Community lawyers may riskbreaching legal practice ethics if they make such contact without the request of thefinancial institution, so an invitation to contact the financial institution should beunambiguous.

See case studies 1, 2, 3, 4, 6, 10, 12, 14, 15, 16, 20, 21, 22, 23

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PART FIVE – CONCLUSION AND RECOMMENDATIONS

This report shows a range of unfair practices that consumers and consumer advocatesare seeing when dealing with Collection House and ALR Lawyers. These practicesmay be more efficient for the finance and debt collection industries. However, they arecreating an environment where consumers wanting to:

� clarify their legal position and their rights;� negotiate with a credit provider or debt collector; and/or� defend proceedings instituted against them;

are likely to face significant barriers and unnecessary difficulties.

In addition, these practices are imposing an unsustainable demand on limitedcommunity and legal aid resources. The costs of this demand are ultimately borne byother consumers and taxpayers who are unable to access these important services.Efficiencies in the provision of legal services to those unable to access private serviceswould be greatly increased if Collection House and/or ALR Lawyers discontinuedtheir practices of:

� failing to respond to correspondence and telephone calls;� failing to provide documents and information covered by the UCCC;� issuing proceedings where it is known that there is a statute of limitations

defence;� instituting or continuing collection activity or legal proceedings while the

matter is the subject of investigation by the ABIO or other similar scheme;� issuing proceedings in jurisdictions that have limited, if any, connection to the

consumer or the contract.

Credit providers cannot wash their hands of debts by outsourcing or selling thosedebts, and should take steps to reduce the incidence of these types of practices bycollection agents and/or the lawyers of collection agents.

5.1. Recommendations for Collection House and ALR LawyersCollection House and ALR Lawyers should:

5.1.1 Immediately commission an independent audit of its compliance withconsumer protection legislation.

5.1.2 Ensure that they respond to enquiries by consumers or their advisors in atimely and courteous manner.

5.1.3 Comply with the obligations in the Uniform Consumer Credit Code to providedocuments and information on request and within the time limits specified in the Code.

5.1.4 Ensure that staff with responsibility for dealing with consumers have anadequate understanding of the UCCC and other relevant legislation and do not makemisrepresentations about the status of the debt, the consequences of non-payment, thedebt recovery process, or any other matter.

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5.1.5 Not institute proceedings to recover alleged debts, or take enforcement orcollection activity in circumstances where (i) the consumer’s request for a currentstatement of account and other documents covered by ss 34, 74 and 163 of the UCCChas not been fully complied with; (ii) the debt is statute-barred, or (iii) the matter hasbeen referred to an external dispute resolution scheme such as the ABIO, and thescheme has not yet made a final decision.

5.1.6 Not institute proceedings to recover debts in a jurisdiction that is different tothat in which the consumer resides unless there is a strong connection with thejurisdiction in which the proceedings are issued.

5.1.7 If proceedings are issued in a jurisdiction that is different to that in which theconsumer resides, the consumer must be clearly advised that they have a right to seek astay of the proceedings, and that they should seek legal advice for more information.

5.2. Recommendations for Financial institutions that outsource collectionactivity or sell or assign allegedly unpaid consumer debtsFinancial institutions should:

5.2.1 Take steps to monitor the conduct of collection agents to whom they outsourcedebt collection or assign debts and to ensure that such agents comply with the UCCC.Such steps should include consultations with caseworkers and other consumeradvisers.

5.2.2 Ensure that debt collection agencies to which debts are outsourced or soldhave, or can readily access, copies of documents and information that must beprovided to consumers under ss. 34, 74 and 163 of the UCCC.

5.2.3 Provide, on request, a statement of the account history and amount owing up tothe time the debt was sold or outsourced to a debt collector.

5.2.4 Implement sufficiently robust audit systems to ensure that debts that are paid orotherwise settled or are statute-barred are not sold or passed to another company forcollection.

5.2.5 Not sell or assign a debt, or outsource collection of a debt, whilst a complaintin relation to that debt is under consideration by either the financial institution’sinternal complaints process or a relevant industry alternative dispute resolutionscheme.

5.2.6 Ensure that the financial institution’s internal dispute resolution proceduresremain available to consumers even when accounts have been sold or sent to anothercompany for collection, and that contact details for the procedures are included in allcorrespondence from the debt collector.

5.2.7 Ensure that any purchaser of a debt agrees to comply with any order made bythe relevant industry alternative dispute resolution scheme, and to cease all collectionor enforcement action while the matter is being dealt with by the scheme.

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5.2.8 Ensure that purchasers or agents either issue proceedings in the jurisdiction inwhich the contract was entered into or clearly advise the consumer that they have aright to seek a stay of proceedings issued in a different jurisdiction, and that theyshould seek legal advice for more information.

5.3. Recommendations for Industry Dispute Resolution schemesIndustry dispute resolution schemes should:

5.3.1 Advise members of the need for internal systems to prevent the sale of a debt,or the passing of that debt to a debt collector, while the matter is being dealt with bythat scheme.

5.3.2 In individual cases, consider making an initial determination that requires thebank to take back the debt (as far as its contract with any purchaser enables it to do so)and/or compensate the consumer for any loss suffered because the matter is no longerwithin the scheme’s jurisdiction.

5.3.3 Ensure that the issue of sale of debts is dealt with in the scheme’s Terms ofReference so as not to unfairly limit the jurisdiction of the scheme.

5.4. Recommendation for State and Federal Law SocietiesLaw Societies should:

5.4.1 In consultation with Legal Ombudsman offices, Attorney-GeneralsDepartments, the ACCC, and caseworkers, develop (i) standard wording to beincluded on demands and proceedings issued in relation to statute-barred debts and (ii)standard wording to be included on demands and proceedings issued in relation toconsumer debts issued in a jurisdiction other than that in which the consumer resides.

5.4.2 Ensure that legal practice rules and regulations are adequate to protectmembers of the public (including those who are not clients of legal practitioners).

5.4.3 Investigate the practices of ALR Lawyers.

5.4.4 Publicise widely the fact that individuals who aren’t the client of the solicitorcan lodge complaints about solicitors.

5.5. Recommendation for State and Federal Attorneys-General:5.5.1 State and Federal Attorneys-General should review the operation of the Serviceand Execution of Process Act 1992 and implement any changes needed to ensure thatconsumers’ access to justice is not restricted by the issuing of proceedings ininappropriate jurisdictions.

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5.6 Recommendations for Regulators

The Australian Competition and Consumer Commission should:

5.6.1 Give priority to the investigation of complaints received about the conduct ofCollection House and ALR Lawyers and take appropriate action in relation to anybreaches of the Trade Practices Act 1974.

Australian Securities and Investments Commission (ASIC) should:

5.6.2 Examine the issues arising from the report, and monitor the practices ofCollection House and ALR Lawyers in relation to ASIC’s current responsibilities andits new responsibilities in relation to credit.

5.6.3 Once ASIC gets responsibility for credit matters, it should review the debtcollection guidelines originally prepared by the ACCC with a view to issuing thoseguidelines in relation to the harassment provisions of the ASIC Act 2001. 8 Thereview should ensure that the guidelines are adequate to deal with the issues arisingfrom this report.

5.7 Recommendations for State and Federal Consumer Affairs Ministers

The following recommendations reflect the fact that current state and federallegislation is inadequate for regulating debt collection, particularly national debtcollection companies.

5.7.1 State and Federal Consumer Affairs Ministers should commit to the developmentof national fair debt collection legislation to complement the current harassmentprovisions in the Trade Practices Act 1974 and the ASIC Act 2001, in consultationwith each other, the ACCC and ASIC.

8 s 12DJ.

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APPENDIX – CASE STUDIES

Case Study 1

Mr L suffers from a number of chronic health problems.

Over 10 years ago Mr L was forced to retire after a serious work injury. At that time hehad a personal loan with Bank B. There was total and permanent disability insuranceattached to the loan, which would have paid out the loan - however, no one informedMr L he had a claim.

For a number of years Mr L and his wife made small payments every fortnight thatthey could ill afford toward the loan. Collection for the bank was conducted by onedebt collection company, and then later by Collection House.

Mr L sought assistance from a financial counselling service because Collection Housewere putting pressure on him to increase payments. The financial counsellordiscovered the error in relation to the insurance. Bank B refunded the payments Mr Lhad made since his injury and retirement plus interest and instructed Collection Houseto close its file, because there was no debt.

A year later, instructed by Collection House, ALR Lawyers reactivated collectionactivity. ALR wrote to the new residents of Mr L’s former home asking for details ofMr L’s whereabouts. The new residents spoke to their neighbours, who were friendswith Mr L and his wife. They telephoned Mr L to tell him ALR were trying to findhim.

Mr L was angry and embarrassed. He telephoned ALR and explained there was anerror. Mr L claimed that ALR did not believe him, and told him he still owed moneyto Bank B. He claimed that ALR refused to investigate and told him it was up to himto provide proof of what he was saying.

Mr L again sought assistance from the financial counsellor, and after a month,numerous letters and referrals to state and federal regulators, ALR acknowledged themistake and apologised. The bank was informed when the error was discovered. Itconfirmed its instructions to Collection House a year before to close the file.

Mr L was very upset by the events, especially in light of the payments made over somany years when they were not required. The episode adversely affected his health.Neither ALR nor Collection House offered any compensation at the time, although anapology was eventually provided.

- Financial Counselling Service, ACT

Case Study 2

Mr Y had an account with Finance Company A that was settled 7 years ago. A letterfrom a debt collection company in 1994 confirmed settlement of the account in full.

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In early 2001, Mr Y received a letter from ALR Lawyers alleging he still owed thedebt. ALR informed Mr Y that they were acting for Collection House, the assignee ofthe alleged debt. The letter, sent from another state, allowed 4 days from the date ofpostage for Mr Y to contact ALR or legal proceedings would commence withoutfurther notice.

Mr Y received the letter the day he arrived home from hospital after an operation andwas recovering from a life threatening illness. He was very worried about the date onthe letter and telephoned ALR to correct the mistake.

Mr. Y said that an officer at ALR told him she did not believe him, that she would notinvestigate the claim that the debt was settled and that it was up to Mr Y to provideproof of what he was saying.

A financial counsellor had assisted Mr Y at the time the debt was settled. Thecounsellor had kept a copy of the settlement letter on file and sent it to ALR. Onbehalf of Collection House, ALR apologised “for any inconvenience caused”. ALRwere informed of Mr Y’s health and the risk their action and that of their clientexposed him to. They were also told that regardless of the settlement, the debt wasstatute barred. No further explanation, offer of compensation or proposal of any typewas put to Mr Y.

- Financial counselling service, ACT

Case study 3

Ms Q entered into a car loan with Finance Company A. Sometime later the car wasrepossessed and sold, at which time Ms Q says she was advised that no furtheramounts were owed. To the best of her recollection she had heard nothing in respectof that account or the alleged debt for a period of at least 8 years. Accordingly, even ifthere was a valid claim, it was clearly statute barred.

In early 2001 Ms Q was contacted by ALR Lawyers. She was told Finance CompanyA had assigned a debt to Collection House, and that she currently owed over $10,000.

At that time, and given the age of the debt, Ms Q was unable to recall details of thedebt. Accordingly she asked ALR for relevant details of the debt, including the age ofthe debt, but they refused to provide any such details.

Ms Q says she was then questioned about her ability to make some payment, and abouther possessions, jewellery, and the financial position of family members. Ms Q saidshe felt intimidated and pressured by this line of questioning, and soon agreed to makea lump sum payment of nearly half the amount claimed in full and final settlement.She did not seek help from a financial counsellor until after she had paid the amount.

- Consumer Credit Legal Service, Melbourne

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Case Study 4

In 1994, Mrs. A sought assistance from Consumer Credit Legal Service (CCLS) inrelation to a debt claimed by a debt collector acting on behalf of Finance Company A.Following the legal service’s representations, the debt collector sent a letter stating thatthey were prepared not to recover the amount outstanding.

In 2001, Mrs. A received a demand from ALR Lawyers in relation to the debt, whichthey claimed had been sold to Collection House. Mrs. A sought advice from CCLSagain. ALR Lawyers did not comply with CCLS’s request for information anddocumentation pursuant to the Credit Act 1984 (Vic).

ALR Lawyers eventually agreed to take no further action after CCLS provided detailsof the previous settlement.

- Consumer Credit Legal Service, Melbourne

Case Study 5

Mr. G. bought a second hand car in 1994. The purchase was financed by FinanceCompany A. All contracts were signed in Victoria where Mr. G lived.

Mr. G advised that the sale contract was cancelled on legal grounds within a shortperiod of time, and that Finance Company A were advised of this. According to the1984 (Vic), Finance Company A was obliged to cancel the loan contract.

Finance Company A did not contact Mr. G again. However, in 2000, CollectionsHouse - which had purchased the ‘debt’ - contacted him to demand payment. InMarch 2001, ALR Lawyers commenced legal proceedings in the Brisbane MagistratesCourt on behalf of Collection House.

The legal centre that acted for Mr. G found that ALR Lawyers were slow to returncorrespondence, and it took a number of letters and telephone calls before they couldspeak to a lawyer at ALR. ALR would not agree to withdraw the legal proceedings.

Mr. G wanted to defend the matter in Court, however it was necessary to transfer thematter to Melbourne.

CCLS had to file a conditional defence in Queensland, according to that state’s rules,disputing the jurisdiction of the Queensland Court to hear the matter.

Despite an indication of ALR Lawyers that they would agree to transfer the matter toMelbourne, and their failure to reply to correspondence, CCLS had to draft, file andserve 3 copies of an application, supported by Affidavit, outlining the reasons thatMelbourne was the more appropriate jurisdiction.

It was only after all of this work that ALR Lawyers agreed to withdraw theirproceedings.

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Had this work been undertaken by a private solicitor rather than a legal centre, theconsumer would have incurred considerable expense. However, in Queensland, costsare not awarded for debts less than $5000 – so the consumer would have not been ableto claim back these costs even if he had won.

Each state has slightly different civil procedure rules, which means that the process oftransferring these matters is not straightforward unless the legal practice is doing thiswork all the time. However, legal centres don’t have the resources to regularly take onthese types of matters.

- Consumer Credit Legal Service, Melbourne

Case Study 6

Mrs. Y has an intellectual disability. She referred a dispute with Bank B to theAustralian Banking Industry Ombudsman, with the assistance of a legal aid lawyer.While the matter was being investigated, she received a letter demanding paymentfrom ALR Lawyers, advising that Bank B had sold the debt to Collections House.

- Legal Aid, NSW

Case study 7

Mrs. Y from New South Wales was having difficulty in meeting payments on herBank A credit card. She applied to the Tribunal in New South Wales to reduce thepayments and the Tribunal granted a temporary Variation Order pending a furtherhearing.

Mrs. Y was making payments in accordance with the order, when legal proceedingswere issued against her in Melbourne Magistrates’ Court by ALR Lawyers. She saysthat she telephoned ALR and explained about the Tribunal Order, and was told ‘…wecan ignore that’.

Mrs. Y sought help from Legal Aid in New South Wales. The lawyer telephoned ALRLawyers to request that the legal proceedings be withdrawn. He asked to speak to asolicitor, but was put through to the accounts manager. He asked for the name of thesolicitor who was responsible for the matter, but the ALR employee refused to tellhim.

ALR initially refused to withdraw the legal proceedings, however proceedings werewithdrawn after the legal aid lawyer wrote to ALR.

However, some weeks later, despite the fact that the matter was still before thetribunal, and Mrs. Y had legal representation, ALR made direct contact with Mrs. Yand demanded payment.

- Legal Aid Solicitor, NSW

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Case Study 8

Ms. H was contacted by ALR Lawyers alleging that she owed a debt. When Ms. Hasked what the debt was for, the person from ALR Lawyers said the debt was for thepurchase of furniture. Ms. H said she did not remember getting a loan for anyfurniture. The person from ALR Lawyers said that Ms. H had to prove that she did notget a loan for furniture. If she could not prove it, she had to pay the debt.

Ms. H contacted New South Wales’ Consumer Credit Legal Centre (CCLC) forassistance. CCLC wrote a letter to ALR Lawyers requesting documents andinformation. No reply was received. Each month, for 3 months, another follow upletter was sent requesting documents. Eventually ALR Lawyers wrote a letterconfirming they were no longer pursuing the debt. Ms. H never received thedocuments requested.

- Consumer Credit Legal Centre, NSW

Case Study 9

Consumer Credit Legal Service (CCLS) acted for Mr and Mrs Z in 1989 in relation toa Matter with Finance Company A. In that year, Finance Company A wrote to CCLSstating, “we are prepared to agree not to issue legal proceedings”.

In 2001 Mr and Mrs Z received a letter from ALR Lawyers, advising that the debt hadbeen sold to Collection House and demanding payment.

Case Study 10

Ms E was paying a car loan to Finance Company B, which had a mortgage over thecar. Ms E also had a personal loan with Bank A. This loan was in arrears and had beensold to Lion Finance Pty Ltd. Ms E claimed that ALR Lawyers telephoned her aboutthe debt to Lion Finance Pty Ltd and said they could repossess the car.

When a financial counsellor telephoned ALR to query this, he says that ALR told himthat they could repossess the car. According to the financial counsellor, ALR statedthat they could repossess the car because the debt was originally owned by Bank A,Bank A owned Finance Company B, and Finance Company B had a mortgage over MsE’s car. This is clearly wrong at law.

The response to a complaint to ALR Lawyers referred to the firm’s policy on recoveryof outstanding funds, referred to the employee’s notes, and stated that the employee“denies the allegations made with respect to the repossession and sale of the car”.

- Financial Counsellor, Melbourne

Case Study 11

Ms. K was a single woman from a non-English speaking background.

Her income had reduced, and she was struggling to make mortgage payments and payher Bank A credit card. She became ill, and wasn’t able to keep up credit card

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payments. She owed about $1,350, and hoped to resume payments when she returnedto her employment, which was still available to her.

ALR Lawyers contacted her. She had returned to work and offered payments of$75.00 per fortnight. She says that ALR refused this. Mrs. K said they were rude andaggressive. Ms. K said she had spoken a number of times to someone in ALR whomshe believed to be a lawyer, who said that no arrangement other than full paymentwould be accepted.

Ms. K sought assistance from a financial counsellor, who telephoned ALR Lawyers.The financial counsellor spoke to someone who the financial counsellor believed was alawyer. The financial counsellor says ALR said that it was too late for anynegotiations as Court judgment had been entered for $2,300 the previous Friday andALR were going to force the sale of Ms. K’s home.

The financial counsellor contacted the Court, and confirmed that no judgment hadbeen entered. She telephoned the Law Society and was advised that the ALRemployee was not a lawyer.

- Financial Counsellor, Queensland

Case Study 12

Mr. M was being pursued for an alleged debt to a credit card account that was openedin 1981. He did not believe any money was owing on the credit card.

In January 2001, Mr. M was contacted by ALR Lawyers requesting a payment of$2,300 for an outstanding debt with Bank B. Mr M. disputed the amount owing, andargued to ALR that he had never been contacted by Bank B regarding any outstandingamounts, nor had she received any bank statements identifying an overdue balance.

The ALR representative informed Mr. M that they could not provide him with anyfurther details regarding the debt, and directed him to contact Bank B.

- Legal Aid Queensland

Case Study 13

Mr. M owed $6,000 to Bank A for a credit card debt. Collection House in Brisbanewere attempting to collect the debt.

Mr. M is blind, and he asked the caller from Collection House to correspond with himvia e-mail, so he could read the output from his Braille printer. They did not agree tothis request.

Mr. M said that he found Collections House difficult to negotiate with. He says that heoffered $500 per month (more than he could afford), and when he failed to pay thefourth payment Collections House demanded full payment and wouldn’t accept furtherinstalments. Legal proceedings were issued, and after judgment was entered againsthim, he was told ‘…we will take furniture from your house.’

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He says that he asked for an explanation of some of the legal terms and procedures, butthe person he spoke to just repeated their statements. He thought he was speaking to alawyer, although this is unlikely.

- Credit Helpline, Victoria

Case Study 14

Mr and Mrs Mc received letters from ALR Lawyers in relation to two debts allegedlyowing to Finance Co A. Mr and Mrs Mc had paperwork showing that the debts hadbeen paid many years before. Their financial counsellor sent copies of these letters toFinance Co A, and Finance Co A instructed ALR Lawyers to stop collection action.

- Financial Counsellor, Victoria

Case Study 15

Ms. K had financial problems, including a credit card debt to Bank A of $3,500, andwas trying to sell her flat to get out of her financial difficulties. During one telephoneconversation with Collection House, in relation to the debt to Bank A, CollectionHouse told her that Bank A could put a caveat on the flat and stop the sale. In theexperience of the legal service, it was most unlikely that Ms. K had a clause in hercredit card contract which would have given Bank A this right.

- Consumer Credit Legal Service, Victoria

Case Study 16

Mr. S is a truck driver. He has had financial problems, due to a reduction in availablework. He had arranged with Bank A to pay off a credit card debt of $3,000 at $70 permonth. However, he was late with a payment, and Bank A passed the debt ontoCollection House.

Mr. S received a letter from Collection House demanding payment within 7 days. MrS rang Collection House and asked if he could pay $70 per month. Collection Housesaid no, the amount had to be paid in full, and that the matter was not in Bank A’shands any more. Collection House told Mr. S that he had to prove he could notrefinance the debt by sending him two rejection letters and Collection House wouldthen reconsider his position.

Mr S approached a finance company. His loan application was refused, but thecompany would not provide a letter. Mr. S rang Collection House to tell them hecould not get a personal loan, but they would not accept the information without aletter.

Mr S has been away working, and Collection House therefore usually spoke to Mr. S’spartner. She was unwell and says she was being badly affected by the aggressivemanner of the callers from Collection House. She says she was ‘scared to answer thephone’, and that the caller was ‘unbelievably rude and frightening’. She saysCollection House’s conduct included:

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� At least two telephone calls per week over an eight week period;� Refusing to believe her when she explained Mr. B was away;� Treating the debt as jointly owed, telling her they will ‘take you to court’, and

she would ‘have a black mark against your name’;� Continual demands that they get a personal loan to pay the debt;� Failing to answer her on a number of occasions when she asked whether the

$70 would be accepted if it was sent, responding with another demand that theyobtain a personal loan.

A financial counsellor contacted Collection House in writing stating that Mr. S couldonly afford $70 per month, but Collection House said that wasn’t enough. Thefinancial counsellor asked whether the offer had been put to Bank A. CollectionHouse said it had not.

The counsellor knew the bank’s guidelines, and that the bank would accept the offer.She asked Collections House to pass the offer on to Bank A and provide writtenconfirmation of the decision.

Collection House said that ‘letters [were] a waste of time’ and asked if Mr. S could pay$50 per fortnight. The financial counsellor insisted that he couldn’t and CollectionHouse advised that he keep paying the $70 per month.

- Financial Counsellor, Victoria

Case Study 17

A financial counsellor was speaking to ALR Lawyers on the telephone and asked tospeak to someone more senior. The person she was handed to confirmed he was ‘incharge’. She asked if he was a solicitor, and he said ‘no’.

She mentioned that her client wished to apply for a hardship variation under theConsumer Credit Code, and he said that he was not aware of these provisions in theCredit Code.

- Financial Counsellor, Victoria

Case Study 18

ALR Lawyers were collecting a debt for Collections House. Collection House hadpreviously bought the debt from Finance Company A. A financial counsellor wrote toALR Lawyers on June 27, 2001 requesting documents and statements in accordancewith consumer credit legislation (which requires these to be sent within 30 days).

As of October 1, there had been no response, although the financial counsellortelephoned ALR Lawyers in mid September and was told they were considering therequest.

- Financial Counsellor, Victoria

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Case Study 19

Ms. O was on a low income and her only property was her household furniture. Shereceived a telephone call from Collection House who said she had a debt to Bank Aand asked for details of her financial situation.

Ms. O sent Collection House a written offer to pay the debt by instalments.

Collection House telephoned her and told her this wasn’t acceptable and that theywanted “the lot”. Collection House told her to obtain a loan immediately, andtelephoned her two days later to ask if she had a loan (which she didn’t).

Collection House subsequently telephoned her at work, even though they had herhome telephone number. Ms. O said they sounded rude and aggressive, and that shewas upset and frightened by the most recent telephone call. Collection House told herthat she had 21 days, of which 9 had elapsed, until everything came “crashing downaround you”.

They said that:� the Sheriff would come and take her furniture, and� they would take her employer to court to garnishee her wages.

She understood this would happen in 12 days, although she had no legal documents toindicate that legal action had been commenced. In Victoria, where Ms. O lived, theSheriff is not allowed to seize certain household assets, and would be unlikely to seizeany of her furniture.

- Consumer Credit Legal Service, Victoria

Case Study 20

Mrs Y was the sole borrower on a Finance Co C loan contract, financing a vehiclepurchased by her brother. Consumer Credit Legal Service (WA) advised the client thatshe had grounds to make an unjust contract claim under the Credit Act, however wastime barred because the vehicle had been repossessed more than two years before sheapproached the legal service.

CCLS(WA) attempted to negotiate with Finance Co C, but they refused any attemptsto negotiate. They also did not issue debt recovery proceedings which would haverevived the client’s ability to make the unjust contract application. Several yearspassed, and the limitation period under the Statute of Limitations expired.

CCLS(WA) wrote to Finance Co C advising them that the six years had lapsed andthey were barred from issuing debt recovery proceedings by the Statute of Limitations.2 years later the client received correspondence from Collection House asking her tocontact them to make arrangements to pay the debt, and threatening legal proceedingsif she did not do so.

- Consumer Credit Legal Service, Western Australia

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Case Study 21

Mrs. S received a letter from ALR Lawyers demanding payment for a debt toCollections House. Collection House had bought the debt from Finance Co A. Mrs. S.had been assisted by a financial counsellor about 8 years earlier in relation to a disputewith Finance Co A, and she recalled that the matter had been settled. She returned tothe financial counsellor, but her file had been destroyed. The financial counsellor wrote to ALR Lawyers requesting copies of documents andstatements. These were not sent within 30 days, as required by consumer creditlegislation. The financial counsellor telephoned ALR Lawyers and was told theywould send them when they could.

The financial counsellor contacted ALR Lawyers on a number of subsequentoccasions. Although the documents and statements were never received, Mrs. S.continued to receive demands for payment from ALR Lawyers. The financial counsellor then contacted Finance Co A asking for documents andstatements relating to the alleged debt. Finance Co A said the debt had been sold, itwasn’t their debt, and they couldn’t assist. Finally, ALR Lawyers apologised and agreed not to pursue payment. - Financial Counsellor, Victoria Case Study 22

This case study, and the next, show the amount of work undertaken by legal aid andcommunity lawyers due to unfair and inefficient industry practices.

22 June 2001: Mr J faxes a written complaint to the Australian Banking IndustryOmbudsman (ABIO) about a disputed debt.

25 June: Consumer Credit Legal Service (CCLS) writes to the ABIO confirmingdetails of complaint.

27 June: Mr J is contacted by Debt Collector X regarding the debt. CCLS contactDebt Collector X and advise of the complaint to the ABIO. Debt Collector X insist thatthey are entitled to have discussions with Mr J because the matter “has gone a bitfurther” than the complaint to the ABIO. CCLS faxes to Debt Collector X authorityfrom Mr J, and confirms complaint to the ABIO.

27 June: CCLS receive a letter from the ABIO advising that the complaint be referredto Bank A, with a request that a response be provided by July 28.

3 July: Mr J receives a letter dated 27 June from Debt Collector X, advising that theyact on behalf of the Bank A, and offering a 25% discount if the amount is paid.

4 July: CCLS contacts Debt Collector X. They say they have no record of previousconversation or fax, and advise they will seek further instructions from Bank A.

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3 August: Debt Collector X contacts CCLS seeking confirmation of complaint toABIO. Apparently Bank A have still not advised them of the complaint. Fax fromCCLS to Debt Collector X enclosing copy letter of 25 June. Letter from CCLS toABIO advising that no response has been received, and advising of continuedcorrespondence with Debt Collector X.

7 August: Bank A contacts CCLS to advise complaint has been investigated. Willconfirm in writing.

8 August: Letter from Bank A to CCLS denying all allegations in client’s complaint,and suggesting client contact Debt Collector X to discuss payment. Letter does notenclose relevant enclosure.

13 August: Letter from CCLS to Bank A requesting copy missing enclosure.

15 August: Letter from ABIO allowing until 15 September to respond to Bank A’sresponse.

24 August: Further letter from CCLS to Bank A requesting copy missing enclosure.

29 August: Client receives letter from Bank A collections demanding payment.

10 September: Fax from Bank A to CCLS enclosing missing enclosure.

11 September: Letter from Collection House to client demanding payment.

13 September: Letter from CCLS to Bank A including a without prejudice offer, andnoting issues with Collection House and Debt Collector X. Copies of this letter sent toABIO and Collection House.

28 September: Letter from ALR Lawyers to client (at CCLS’ address) advising thatdebt has been assigned by Bank A to Lion Finance Pty Ltd, and demanding paymentof the debt.

Case Study 23

Ms L was a New South Wales resident who suffered from schizophrenia. Sheapproached a Legal Aid lawyer for advice because a friend had stolen her driver’slicence and used it to sign up to a Telco A mobile phone account.

The friend used her own address so that all correspondence was sent there. Ms L didnot know about this until the friend gave her the $5,000 Statement of Claim, issued byALR Lawyers, which had been served at the friend’s house.

18 January 2000: Ms L’s lawyer faxed a 4-page submission to ALR Lawyers inMelbourne.

15 February: Ms. L’s lawyer called ALR Lawyers to chase up the letter and was giventhe name of the person handling it and left a message.

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16 February: Ms. L’s lawyer rang and spoke to the person whose name he’d beengiven. This person said that his Telco A work had been taken from him and given tosomeone else, who didn't know about it yet. He said they were waiting for a responsefrom the police to confirm a fraud complaint had been made, so Ms L’s lawyer sent afax that day to ALR giving details of Ms L’s contact with police.

28 February: Ms. L’s lawyer received a fax from the original contact at ALR Lawyerssaying they'd referred the fax to its client (Telco A) for consideration and instructions.

13 April: Ms. L’s lawyer sent a fax to the original contact at ALR Lawyers with aletter from a police constable asking for the information which Ms. L’s lawyer hadalready requested from ALR by way of further and better particulars.

1 May: Ms. L’s lawyer sent a follow up fax asking for a response. The next day, hereceived a response from the original contact at ALR Lawyers saying they were stillawaiting instructions from their client.

4 July: Ms. L’s lawyer called the original contact at ALR Lawyers who wasn't there,so he spoke to the person who had apparently taken over the work back in February.He said the work was now being done out of the Brisbane office. Ms. L’s lawyer left amessage for the original contact.

Later that day he called the original contact and received the name of the Brisbaneoffice contact who was now doing the work. Ms. L’s lawyer called the Brisbane ALRLawyers contact.

He was told ALR had restructured their computer system and it was ‘down’, so noinformation could be found about what's happening. He was asked to fax all previouscorrespondence, and told that the system would be up the next day and then they couldsee what was going on. He asked what would happen with the court proceedingsissued in Melbourne if the Brisbane office was now handling the matter, and was toldthat if the contract was formed in Melbourne it would stay in the Melbourne court. Infact, the contract had been formed in Sydney. He said if he had no answer in a weekhe’d contact Telco A directly, and he confirmed this by fax.

10 July: Ms. L’s lawyer called the Brisbane contact at ALR and left a message.

11 July: He called again and was told his fax had been received and enquiries of TelcoA would be made, however the system was ‘down’ and no information could beobtained until after it was back up.

12 July: He again called and was told that ALR Lawyers had been taken over, causingthe delay. His fax would be passed to Telco A and they'd get back to Ms. L. in acouple of weeks. He sent a fax to Telco A's general manager of credit in Melbourne.He asked that Telco A provide its instructions to ALR Lawyers to withdraw the legalproceedings as soon as possible. A copy of that letter was faxed to ALR Lawyers inBrisbane.

25 July: Ms. L’s lawyer was called by a person at Telco A working in the office of theGeneral Manager of credit. He was informed Telco A is now handling the matter, andthat although it appeared to be a clear case more information was needed. He advised

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that the matter had been withdrawn from ALR. He sent a fax to Telco A with theadditional information as requested.

29 August: Ms. L’s lawyer received a call from Telco A apologising for the delaycaused by their inability to find the contract to assist in the case against the friend.They were satisfied it was a fraudulently connected service, Ms L. would not bepursued for the debt, and the agency would finalise the Court proceedings inMelbourne.

9 October: Ms L’s solicitor left a message for the Telco A contract regarding thefinalisation of the proceedings.

16 October, he sent a fax asking for a sealed copy of the Notice of Discontinuance andwritten confirmation of the decision not to pursue the client.

31 October: Ms L’s solicitor received from Telco A, a faxed copy of a letter dated 7September 2000 releasing Mrs. L. Telco A was still waiting on the Notice ofDiscontinuance from ALR Lawyers.

12 December: Ms L’s solicitor called the contact at Telco A, who expressed surprisethat he had not yet received the Notice of Discontinuance. Telco A agreed to call ALRLawyers and see what was happening.

15 December: Ms L’s lawyer received from Melbourne Magistrate's Court a copy ofthe Notice of Discontinuance which had been filed on 5 September 2000.

- Legal Aid, NSW

Case study 24

Mr J’s solicitor asked someone at ALR Lawyers whether judgment had been enteredagainst his client.

The person’s reply was that ‘... there’s something here that looks like judgment.’ Infact, judgment had not been entered.

- Consumer Lawyer, Queensland

Case study 25

A number of consumers contacted caseworkers in relation to debts allegedly owing toFinance Co A that were being collected by Collections House or ALR Lawyers.

Many of these debts, which we believe were purchased from Finance Co A, werestatute barred (see section 3.3) – and a significant number had actually been paid orsettled.

Following advocacy by the consumers’ representatives, the individual matters wereeventually dropped. However, concerns about the handling of these debts were raisedat the time with Finance Co A and ALR Lawyers.

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Finance Co A responded that it ‘…did not assign any debt which had been finalised,was statute barred or was the subject of an undertaking … that the debt would not bepursued’, and that ‘…any correspondence sent by Collections House or ALR Lawyersto debtors with accounts in this category was done by them in error’.

ALR Lawyers advised that, since the issue had been drawn to their attention, they hadundertaken an audit of their files, and removed names where debts had been paid orsettled. However, it is unclear how the personal details of consumers who did not owea debt, came to be in the possession of a debt collector.

- Consumer Credit Legal Service (Victoria)

Case Study 26

Collection House contacted Mrs X in relation to a debt with Finance Co A.

Mrs. X offered to pay by instalments, but Collection House refused her offers, andinsisted that she apply for a loan. Collection House referred her to a finance broker,and although a loan application was made it was refused.

Mrs. X claims that in a telephone conversation with Collection House, she was told:

“I can guarantee that they can go into your house, get all the whitegoods”.

She says that she asked what this meant. The Collection House employee said that itmeant that the Sheriff could take her fridge, microwave, TV, video, washing machineand car.

He said, “This can all be done before Christmas, so if you want a nice Christmas Isuggest you do something about it now”, and “Once we’ve taken all your stuff, it willtake you two years to get over it, but eventually you will”.

In Victoria, where Mrs. X lives, the Sheriff is prohibited from seizing household assetswhich are protected in Bankruptcy, and that Sheriff would be unlikely to seize any ofMrs. X’s whitegoods.

Mrs. X obtained advice, and sent a written complaint to the Australian Competitionand Consumer Commission and sent a copy to Collection House.

Mrs. X received a telephone call from ALR Lawyers in relation to her complaint. Theperson apologised for the conduct of the Collection House employee. However, whenMrs. X explained that she had received advice that the debt collectors could not arrangefor the Sheriff to seize all her whitegoods, the ALR employee said “Oh yes we can”.

- Consumer Credit Legal Service, Victoria